Westpac’s latest Red Book, authored by Matthew Hassan (pictured), head of Australian macro-forecasting, paints a mixed picture of the consumer recovery.
While spending has gained momentum through the middle of the year, renewed inflation pressures and fading rate-cut hopes have weighed heavily on sentiment.
Hassan said the recovery appears “caught ‘betwixt and between’”, with spending showing resilience but confidence “much more nervous about the year ahead.”
At 92.1, the Westpac–Melbourne Institute Consumer Sentiment Indexhas slipped back into pessimistic territory, although still well above the extreme lows seen through 2022–24.
“The consumer recovery, it seems, is caught between improving fundamentals and a policy environment that could easily see momentum stall,” the report noted. Westpac expects no further rate cuts for at least six months, as stronger inflation has cooled expectations of more monetary easing.
Despite broader caution, housing sentiment remains a bright spot. “Homebuyer sentiment continues to firm,” Westpac said, with the time to buy a dwelling index rising 9% over three months to 96.5. While that’s still below the long-run average of 120, it marks a clear improvement from last year’s lows.
The bank attributes the lift to lower interest rates and the federal government’s expanded First Home Buyer Guarantee which now allows more buyers to enter the market with a 5% deposit and no lender’s mortgage insurance.
Sentiment among 18–34 year-olds has turned “outright positive”, now in line with its long-run average. By contrast, confidence among 35–50 year-olds fell 12% to 87, reflecting tighter budgets and deeper affordability stress.
Westpac cautioned that affordability remains a major constraint: “A 10% price rise generally outweighs a 1ppt interest rate decline in terms of purchasing power.” That imbalance, Hassan said, continues to temper the benefits of recent rate cuts
While the desire to buy remains mixed, Australians’ price expectations have rarely been higher.
“Consumer expectations for house prices are becoming extremely bullish,” Hassan said.
The Westpac–Melbourne Institute House Price Expectations Index climbed another 5.6% over the three months to October, hitting a 15-year high of 171.9. “Remarkably, 96% of consumers with a view expect prices be the same or higher in a year’s time,” the bank said.
The optimism is broad-based, with Melbourne, units, and lower-priced properties leading the upturn. Strong population growth, limited housing supply, and easing monetary conditions have reinforced perceptions that housing remains a “one-way bet” on capital gains.
Still, Westpac noted that the share of “strongly bullish” respondents — those expecting gains above 10% — remains slightly below the 2021 highs, suggesting buyers are confident but not complacent.
Behind the sentiment numbers, actual spending remains surprisingly firm.
Westpac’s DataX Card Tracker shows household expenditure rising about 2% in Q3, with discretionary services leading growth. The bank said the data now aligns more closely with official ABS measures, confirming that the consumer recovery is “on a firmer footing.”
Interestingly, the strongest spending momentum is coming from the mortgage belt — households most exposed to rate changes. Westpac found that repayments for these borrowers have fallen around 6% since the start of the easing cycle, while total spending among mortgage holders rose 6.4% over the past year.
However, the picture diverges across demographics. Borrowers with small savings buffers increased spending 7.1%, compared to 5.4% among those with higher buffers.
Meanwhile, older deposit-reliant households have seen weaker spending growth, as lower rates reduce their interest income.
Inflation remains a key drag on sentiment. Consumers were rattled by higher-than-expected CPI readings through the September quarter, which “sparked renewed doubts about the path of interest rates.”
Still, Hassan said the labour market remains relatively solid, with unemployment expectations steady and risk aversion easing slightly from mid-year highs.
Risk appetite also remains subdued overall — Westpac’s Risk Aversion Index sits around 45, well above historical averages.
“Consumers are still unsure about taking on risk in more exposed asset classes,” Hassan said, with most households preferring to save or repay debt rather than invest in property or shares.
Even so, the combination of falling repayments, stable employment, and rising housing optimism points to a sector that’s proving remarkably resilient in the face of economic uncertainty.
Bottom line: Housing confidence is firming, younger buyers are returning, and price expectations are the strongest in 15 years—but affordability and sentiment gaps mean brokers remain essential in guiding clients through the next phase of the market.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
